Delhi High Court Ruling: No Vacillation Allowed in Reassessment Decisions

Last Updated on August 7, 2024 by News Desk

The Delhi High Court ruled that reassessment decisions under the Income Tax Act cannot be based on additional or subsequently provided reasons. The court emphasized that the statutory scheme of reassessment does not permit vacillation, nor can a decision be sustained through later supplementation of the original opinion.

Case Background

In the case of Banyan Real Estate Fund Mauritius v. Assistant Commissioner of Income Tax, the petitioner, a non-resident real estate company, filed its tax return and completed the assessment. However, the Assessing Officer (AO) later issued a reassessment notice, claiming non-filing of the income tax return based on remittances by a foreign company and a payment for share acquisition. The petitioner responded by providing details about the sale of shares and claimed exemptions under the India-Mauritius Double Taxation Avoidance Agreement (DTAA).

Court Observations

The Division Bench of Justice Yashwant Varma and Justice Ravinder Dudeja clarified that the reasons for reassessment must not shift and that the AO cannot continually alter the basis for initiating reassessment. The court highlighted that the AO was unaware of the original return filed by the petitioner and had not examined it to form an opinion that income had escaped assessment.

The court asserted that simply because the petitioner claimed the income was not taxable under the Income Tax Act, it did not justify the Revenue’s opinion that income had escaped assessment. For reassessment to be valid, the Revenue must form an opinion that the financial transaction was taxable and that income had escaped assessment.

The Bench noted that the initial notice under Section 148A(b) did not allege the petitioner was ineligible for treaty benefits. This allegation only surfaced in the final order under Section 148A(d), based on a separate order of assessment. The court found no independent evaluation of whether the petitioner was entitled to the DTAA exemptions in the challenged order.

Written by — Athi Venkatesh AVD

Conclusion

The court concluded that the original show cause notice (SCN) was based on the incorrect assumption that the petitioner had not filed a return, while in fact, the return was filed and acknowledged. Since the petitioner earned revenue from the sale of shares and claimed exemptions under Article 13(4) of the DTAA, the AO could not deny treaty benefits based on a charge not included in the original SCN. Consequently, the court quashed the AO’s order under Section 148A(d) and the related notice under Section 148, allowing the assessee’s appeal.

Counsel Representation

The appellant was represented by Balbir Singh, Karan Sachdev, and Pragya Kaushik. The respondent was represented by Puneet Rai, Ashvini Kumar, and Rishabh Nangia.

Case Title and Number

Banyan Real Estate Fund Mauritius v. Assistant Commissioner of Income Tax, W.P (C) 10485/2023.